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Defensive Strategies for Market Success NAUMAN RAFIQUE L1F09MBBF0018Wednesday, April 18, 2012
Introduction• Competition forces companies to constantly engage in offensive and defensive marketing strategies.• Rivalry occurs because one or more competitors either feels the pressure or sees an opportunity to enter an industry or to improve its position within an industry.• Companies respond to competitor challenges by counterattacking with increasing advertising expenditures, cutting prices, increasing innovation, and introducing new products.
Defensive Strategies• The purpose of DS is to make a possible attack unattractive and discourage potential challengers from attacking another firm.• Incumbents try to shape the challenger’s expectations about the industry’s profitability and convince them that the return on their investment will be so low.• Incumbent needs to take timely action to discourage a challenger from making any substantial commitment.• Marketing managers and business strategists have developed a number of defensive marketing strategies.
Defensive Strategies Pre-entry Post-entry strategies strategies Fortify and Cover all Continuous Capacity DefendSignaling Engage Defend bases improvement expansion position Introduce before fighting in cross- entrant brands becomes parry established
Signaling• Companies often use signaling to announce their intention to take an action.• Announcements can be made through interviews with the press, press releases, speeches, trade journals, newspapers, and other means.• A defending firm can effectively keep potential entrants out of the industry by using the threat of retaliation.• The higher the perceived probability of retaliation and its degree of severity, the lower the probability of attack by a challenger.
Fortify and Defend• Higher the profits earned by incumbent firms, the higher the motivation to enter.• The inducement to attack can be lowered by reducing the profit expectations of the entrant.• The most common barriers to entry include: Economies of scale Product differentiation Capital requirements Switching costs Experience curve cost reductions Proprietary technology or patents Access to raw materials and other inputs Access to distribution channels Location
Cover All Bases• It involve introducing multiple versions of a product in terms of models or product types.• Many firms carry full product lines to block access to the industry by new entrants.• This strategy is also used by chain stores when they rush to expand rapidly and keep competitors out of the market.
Continuous Improvement• A continuous improvement strategy calls for a relentless pursuit of improvements in Costs Product quality New product development Manufacturing processes Distribution• Through a continuous improvement strategy, firms try to stay one step ahead of their competitors and help protect their competitive position from hostile challengers.
Capacity Expansion• Manufacturing firms may build excess capacity as an entry deterrent strategy.• When a potential entrant realizes that the industry has excess capacity and its own entry will only add to the volume of unutilized industry capacity, it will be reluctant to enter.• Capacity expansion is a credible deterrent strategy if capacity costs are very high.
Defend Position Before Entrant Becomes Established• Upstarts are especially dangerous if they enter the market by breaking the rules of the game with radically new products, or innovations in pricing, distribution, delivery, service, and positioning.• Incumbents often defend themselves by embracing and improving the intruders technology, attacking the upstart’s reputation as a product reliable source of supply, and hiring some of the best people of the attacking firm.
Introduce Fighting Brands• Introduced by organizations to fight a competitor’s brand that threatens one of their major brands.• Competing brands are typically lower priced versions of the firm’s premium brands that claim equal quality at a much lower price.• It can be an appealing strategy because they help fight off a price-cutting brand that is threatening the core brand of the firm while preserving its premium image and profit margins.
Engage in Cross-Parry• The degree of multimarket contact between two firms affects the intensity of rivalry and the extent of retaliation amongst these firms.• Competitors interacting in multiple markets are less motivated to compete aggressively because of the possibility of retaliation across various markets.• Competitors have an incentive to cooperate since they stand to gain if they allow their rivals to dominate certain markets in exchange for similar treatment in the markets in which they are dominant.• Cross-parry is used when a firm that is challenged by a competitor in one area chooses to challenge this competitor in another area.